Local Government Finance Bill

Christopher Chope Excerpts

2nd reading: House of Commons & Carry-over motion: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 23rd January 2017 Commons Chamber

[Mr Christopher Chope (Christchurch) (Con)]

I am sorry that the shadow Minister’s glass is half empty. He said that the Bill had the potential to create a much better situation, as I think it has, but also seemed to be emphasising that he thinks things are going to be far worse. I am glad he is at least not going to be voting against the Bill’s Second Reading.

My hon. Friend the Minister referred to a once in a generation reform; I can recall my involvement as a Minister during the passage of the Local Government Finance Act 1988, when I took forward the uniform business rate, among other matters. I am delighted that my hon. Friend has retained the principles of the uniform business rate, which was introduced to prevent Labour councils at the time—for example, in Liverpool—from so attacking their own businesses that they drove them out of town and, in so doing, drove the jobs away as well. I am glad we are not going to be allowing councils the freedom to destroy jobs which they had prior to introduction of the 1988 legislation.

I welcome the emphasis on certainty and predictability, in which context I ask my hon. Friend the Minister to set out a bit more clearly how the reforms that he says are going to be brought into effect in 2019, including the new funding formula, are going to interact with the four-year settlement, which, as I understand it, will still be there in 2019-20. For example, we have heard from the Government that councils can increase their adult social care precept by an extra amount in the next financial year and the year after, but in the third of those years, 2019-20, they will not be able to. How are those arrangements going to interact with my hon. Friend’s laudable objective of introducing all these reforms in 2019-20?

Clause 4 is very relevant to matters of local government reorganisation. The nine councils in Dorset are meeting this week and next to decide whether they wish to go down the road of a local government reorganisation. Two of those councils, Poole and Bournemouth, seem to be supporting the idea of creating a new unitary authority with Christchurch, in the belief that were the Secretary of State unwise enough to approve such a proposal and the unitary authority was set up, on day one the residents of Christchurch would be paying £200 more in council tax at band D than the people resident in Poole or Bournemouth.

Last week, my hon. Friend the Minister responded to my written question to confirm that it is not possible for an individual principal authority to levy council tax in one part of its area at a level different from that in another. That is an important principle. I hope that my interpretation of clause 4 is correct when I emphasise that were there to be a unitary authority covering Poole, Bournemouth and Christchurch, from day one the people of Poole, Bournemouth and Christchurch would all pay exactly the same level of council tax.

The idea of excessive levels of council tax has often been interpreted as being about excessive levels of increase, but, as the explanatory notes on clause 4 make clear, the clause will allow

“the Secretary of State to make a statement of principles for determining whether council tax is excessive covering a number of years, rather than just one.”

Am I correct in my assumption that were there to be a new unitary authority for Poole, Bournemouth and Christchurch, the Secretary of State could use the powers in clause 4 to say that there should be one set level of council tax for the authority, starting from day one? I ask because later this week, in both Poole and Bournemouth, councillors are going to be invited to support the proposal for a unitary authority in the mistaken belief that they will continue to be subsidised by the residents of Christchurch for 20 years, under an equalisation/harmonisation regime. If they were disabused of that and told that from day one they would be liable for an increase of up to £200, I think minds would be concentrated and there would not be quite so much enthusiasm on the part of councillors in Poole and Bournemouth for what is being proposed, which is hotly contested by councillors not only in Christchurch but in other parts of rural Dorset.

I hope I can get some clear answers to those questions. The essence of the provision in the Bill is that if councils impose excessive levels of council tax on their citizens, there should be the safeguard of a referendum, but what is proposed in the name of local government reform in Christchurch, Poole and Bournemouth is that people in Christchurch should be expected to pay extra council tax but will not have the chance of a local referendum to decide whether or not they wish their council to be abolished and absorbed into a new one. If we can have referendums on the levels of council tax, why can we not have referendums on whether a council is to be abolished? It seems that something is rather out of sync.

In responding to this debate, will my hon. Friend the Minister be a little bit clearer about the pooling arrangements? Why are the Government taking the power to introduce mandatory pooling arrangements, and how will they work? Can all nine local authorities in Dorset be regarded as a pool for the purposes of business rate income and distribution? I do not see any problem with that. In fact, it might be quite desirable, but why must it be imposed by the Government, rather than agreed to locally?

My next point came out in the response of the shadow Minister. I am concerned that, as a result of the powers being given in this Bill, some businesses may find they are in a minority in an area and subject to significant extra supplements on their business rates. How will we ensure that a minority of businesses are not oppressed by the majority? In east Dorset, there is a business improvement district centred on a Ferndown industrial estate. When it was set up, there was concern among some businesses that they might end up paying extra for things that were of no use to them. Can my hon. Friend spell out the safeguards that will be in place to ensure that significant increases in supplements or additional business rates are not imposed on hard-pressed businesses?

I turn now to clause 9 on public conveniences. Christchurch Borough Council has been privileged to win the Loo of the Year award on many occasions, and it has a really good selection of public conveniences, as befits its age profile and its reputation as a very important tourist destination. Meanwhile, much to the consternation of the local people in Poole, Poole Borough Council has decided to close half its public conveniences. Some councils are now thinking outside the box and saying, “Why can’t we enter into joint arrangements so that public buildings can be made available for the provision of public conveniences?” [Interruption.] My hon. Friend the Minister is acknowledging that. On reading clause 9, it seems that there will be no relief from council tax or business rates for a building that partially consists of a public lavatory but that offers other facilities as well. It is difficult to speak to clause 9 without puns, but I hope that the gist of my point has come across. Why would we wish artificially to restrict a relief such as this and say that it will be available only on a free-standing, dedicated public lavatory?

[Richard Drax]

The matter of public conveniences of course raises some humour, but let me make this point. When I attended an Age UK event some years ago, I was told that there are 2 million people in this country who can be no more than 10 minutes away from a loo. If there is not one available, they cannot leave their house. This is a serious issue, and money is needed to provide this vital service.

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[Mr Chope]

I agree with my hon. Friend. One reason why I am a great supporter of small local district councils is that they are accountable to the local town and the local people. It means that those local people can decide whether more money should be spent on public conveniences or on public parks. It is much better to leave those discretions to the local councils, which is why I am so strongly against the imposition of unitary authorities in Dorset.

[Mr Clive Betts (Sheffield South East) (Lab)]

I rise to support this Bill in principle, although much of the detail, which will determine whether it will be effective in practice, is not in the legislation itself, but will be worked out in due course.

Just in passing, I note that the hon. Member for Christchurch (Mr Chope) gave himself credit for the uniform business rate system. I noticed that he did not give himself credit for the other part of that Act when it came in at the same time.

[Mr Chope]

I do not resile from my enthusiasm for the community charge as it was introduced, because it delivered a ready reckoner for local people. Our council system would be a lot more accountable if we still had the community charge.

[Mr Betts]

The hon. Gentleman is the last Member standing who supports that legislation.

Let me refer to the first report this Parliament of the Communities and Local Government Committee, which went into considerable detail about the Government’s proposals on business rates. As we were conducting our inquiry, the Government announced a further consultation, so this was a list of matters for the Government to consider, which I hope they are doing. We had a good deal of evidence about issues that do need consideration and resolution before the system finally comes in. I will not refer to the general issues of local government finance. My concern is that, since 2010, local government has received far more than its fair share of the austerity measures, and that local councils, such as my own northern council in Sheffield, have received more than their fair share of the cuts that local government as a whole has had to endure.

I welcome the devolutionary approach that the coalition Government took and that this Government are now taking, but only as far as it goes. I recognise that devolution cannot simply be about devolving powers and giving councils more control over money that Government give to them, but councils must have more ability to raise that money in the first place. Fiscal devolution is just as important, and the Committee has recognised that. This Bill, in a very small way, goes in that direction, but it still leaves us the most centralised country in western Europe.

I thought the Minister was getting a little bit carried away at the end of his speech when he called the measure “revolutionary”. I cannot really see this as a revolutionary change in local government finance. It leaves us with local authorities having to rely on council tax—I have no problem with that—which raises about 28% of local government finance. It is the only tax in central and local government that needs a referendum to increase it beyond a given amount, which is determined by the Secretary of State.

I have one little point about this proposed legislation: in future, this House will no longer be able to approve Ministers’ decisions on the threshold at which local authorities have to bring in a referendum to have a council tax increase. That is yet another power taken away from this House. I hope that, at some point, Members will have the chance to express a view on that.

On the business rate retention, it is a 100% retention of the growth in business rates—that is what the system means—with no power to determine multipliers, except to reduce them. On the supplement, in very limited cases—for mayoral combined authorities or the Greater London Authority—the business rate can be increased by a very small amount for specific projects. It would be right and more democratic if councils themselves had the ability to determine business rate multipliers at a local level, even if they did it on a joint basis with other councils. That would take us back to the system that operated before the hon. Member for Christchurch had his say and brought in the new legislation.

I do not know why Ministers are so resistant in this regard, because, in the end, if councils cannot determine multipliers, they have very limited ability to raise income from business rates. I accept that they can do it by approving development—the whole purpose of this is to give more incentives to do that—but that is limited control indeed. It still leaves us with a very centralised system.

There are some important details that we must get right. We had an enormous amount of evidence in our inquiry that showed that the appeals system is a major problem for councils. Rather than falling on the central pot, the cost of appeals potentially falls on individual councils. I understand that, collectively, local authorities are holding back about £1.5 billion in reserves to cushion against appeals. When my own local authority in Sheffield gave evidence, it said that 33% of its business rate base was subjected to appeal, which is a very high figure. We need to deal with that uncertainty for local councils.

By far the biggest challenge in this Bill is how we marry the need to give incentives for development, which I entirely accept, with the need to equalise within the system—to recognise those authorities that cannot grow their base as rapidly as others but still have needs that are high and that might grow in future. My concern is that trying to do that with one tax is a bit like trying to play a round of golf with one club. Can we really do competing things—equalise and incentivise—with the same tax, or are we going to keep some form of grant to do the equalisation, which might make the system an awful lot simpler? Equalisation is never simple, but it could become more complicated because it is now being addressed as part of the business rate system. I will leave that with Ministers to think about.

I welcome the fact that Ministers are going to be doing the new needs assessment with the Local Government Association, which I understand will have a working group. The Communities and Local Government Committee will do some research on that as well.

Let me move on to the complications with resetting in the system, which is really important. If we reset too often, we take the incentives away, but if we do not reset often enough struggling authorities will struggle for longer. Will Ministers look at some form of rolling reset— this is an interesting idea that the Committee heard in our inquiry—so that we do not have a cliff edge where we say, “Right, all the extra business development you have had in the past six years will now be stopped in the system and the whole thing will be reset.” What happens if there is a new development only six months before the reset? Why would any authority want to encourage that development when, if it waited another few months, it would fall into the new period and get the benefit of the business rate for longer? Those are some technical issues that we really need to address.

Will we have a new needs assessment every reset period, or will the needs assessment that is done at the beginning of the system last in perpetuity? If it is the latter, how is the needs assessment going to work with the reset periods? Again, I think that it would be much easier if the needs assessment were done in relation to a separate grant kept within the system. I accept that if we had a separate revenue support grant we would need to devolve even more powers to local government to absorb the money from that grant, but it might be easy to do, and it would be in the spirit of devolution then to devolve even more powers. I ask the Minister to look at our Committee’s report in that regard.

I am pleased that tenants allowance has been taken off the agenda. If we are going to devolve powers, can we make them powers that are relevant to business mainly in relation to transport and skills, which were asked for in relation to economic development? Businesses could then understand that, although they could not have an immediate say in linking the money raised from business rates to a particular project, their taxes are, in principle, related to business activities in their area. I also say to Ministers that if we are to have a new system, there are still powers under section 31 for them to give grants.

We cannot consider a whole new system without looking at social care. We have to look at a long-term, revised arrangement for funding social care. One of the real concerns—it came out during our inquiry—is that social care demands are likely to increase faster than income from business rates. If we are relying on income from business rates to fund social care in the long term, there is bound to be a growing disparity. If we build that into the system right at the beginning, the system will never succeed in doing its job. Let us have an independent look at social care, and at whether some other form of funding needs to come in to support it in the long term.

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[Gavin Barwell]

The Secretary of State has just told me that he has discussed the pilot with leaders in the city region and my officials have told me that there have been some detailed discussions. It is certainly true that not all of the points have been dealt with yet, but I will happily write to the right hon. Gentleman to provide him with some reassurance.

I will deal with some of the points that colleagues have made. My hon. Friend the Member for Christchurch (Mr Chope) talked about local government reorganisation in Dorset and what the position might be there. I can tell him that it would be possible to set one level of council tax from day one, but in previous reorganisations a period has been allowed for council tax rates to equalise. He asked about the pooling arrangements set out in the Bill. We intend to consult local government about those arrangements, but the reason for the change is that the current arrangements have led to some local authorities being left out of what would have been logical arrangements, and we should not allow that to continue. He also made the point that we are looking to implement these reforms in the last year of the four-year settlement. That is true, and we made that clear at the outset when we set out the settlement.

[Mr Chope]

Will my hon. Friend give way?

[Gavin Barwell]

If my hon. Friend will allow me, I will make a bit of progress, because I have a lot of points to respond to.

The Chair of the Communities and Local Government Committee, the hon. Member for Sheffield South East, said that he would like authorities to be given the freedom not just to reduce the multiplier but to increase it. That would certainly be the easy way to raise more income, but Conservative Members believe that the way to raise more income is to grow the local economy, and we are trying to provide incentives for local authorities to do that.

The hon. Gentleman made the crucial point that if resetting were done too often, the incentive for growth would disappear, but if it were not done regularly enough, there would be a danger of authorities falling behind. I can confirm to him that we will look to adjust the needs baseline every time we reset—that is a crucial part of the reforms. We may also need to look at the mix of measures that have been devolved to make the package fiscally neutral, because as he said, demand for services may grow more quickly than the income from the tax base. Those issues will have to be looked at each time.

My right hon. Friend the Member for Cities of London and Westminster (Mark Field) spoke powerfully about the unique constituency that he represents, for which he is such a powerful advocate in the House. He talked about the huge potential for income there, but also the real challenges that his local authorities face.

My hon. Friend the Member for Northampton South (David Mackintosh) made a good point about ensuring that there is an incentive for local authorities to help small businesses, from which they might not get a business rates income. The Government’s hope, and I am sure that of his local authority, is that small businesses will grow to become medium-sized and larger businesses, so that the incentive will still be there in the longer term.

My hon. Friend the Member for South Dorset (Richard Drax) made an important point about the appeals system for business rates. At the moment, local government bears a significant part of the risk of appeals. One of the reforms in the Bill that the Local Government Association has welcomed deals with that issue, so that the risk does not sit with individual local authorities. Clearly, with 100% retention that risk would be significantly increased, so we have sought to address the issue that he is concerned about.

My hon. Friend the Member for Cannock Chase (Amanda Milling) raised the issue of the safety net and referred to an example in her constituency that I believe she has raised with Ministers a number of times. At the moment, in the 50% retention system, there is a safety net at 92.5% of assumed income. As part of developing these reforms, the Government will need to give thought to what the arrangement should be under 100% retention. She is absolutely right to flag up the importance of protecting authorities that face a sudden large loss in their income.